Thursday, June 8, 2017
The value of LeBron to the city of Cleveland is making head line news. The owner of Quicken Arena in downtown Cleveland has asked for a $180 subsidy from the city and county to renovate the area. We want to look more closely at the economic impact Lebron and the Q Arena have on the city of Cleveland.
Cleveland.Com discusses the value of LeBron's return in 2015. The estimate was $500 million in the story. However, the article covers reason why that figure might not be reliable. Basically, very little new revenue is generated in northeast Ohio from outside the region, instead the money simply flows from other spending in the region like movies and restaurants. (Hey, I am going to skip Starbucks this week to see LeBron).
An older article from 2010 tracks the details of "How much is LeBron worth to northeast Ohio?" They breakdown LeBron value to the local businesses, City, Region and the Cavaliers.
The authors also call LeBron "priceless" in the story. The statement captures how difficult it is for a city to strike a fair deal with owners regarding arenas and superstars. There is always an implied threat they will move away. And you can't negotiate with a monopoly.
We do want to note: There is some value in bringing together a diverse set of fans including those from the suburbs to downtown Cleveland. Also, LeBron and the Cavaliers enhance the image of the city of Cleveland nationally and internationally.
A new paper from American Enterprise Institute economists attempts to quantify the effect.
The paper called "Taking My Talents to South Beach (and Back)" looks at the natural experiment of LeBron James leaving Cleveland in 2010, moving to Miami (winning two championships) and then returning to Cleveland in 2014.
The researchers found that LeBron James increased the number of restaurants and bars by about 13% and employment by 24% in the local area. The effect is most notable with in a one mile radius of the arena. There is was no effect past seven mile away
In related but separate news, one of the key papers in the sports subsidy field, "Do Economists Reach a Conclusion on Subsidiesfor Sports Franchises, Stadiums, and Mega-Events?" by Dennis Coates and Brad R. Humphreys, summarizes the opinions of economists related to supports subsidies.
Here is another link.
A majority of economists surveyed at the American Economics Association convention find no benefit to sports subsidies. There is no market failure requiring a subsidies, instead the subsidies enrich monopoly owners. Basically subsidies are a waste of money and team owners are playing off cities against each other.
Here is a great quote from the paper...
"We have seen that economists in general, as represented by Whaples’s survey (2006), oppose sports subsidies. Economists reach the nearly unanimous conclusion that “tangible” economic benefits generated by professional sports facilities and franchises are very small; clearly far smaller than stadium advocates suggest and smaller than the size of the subsidies. The fact that sports subsidies continue to be granted, despite the overwhelming preponderance of evidence that no tangible economic benefits are generated by these heavily subsidized professional sports facilities, remains a puzzle."
Brookings Institute has the often quoted article from 1997, Sports, Jobs, & Taxes: Are New Stadiums Worth the Cost? by Noll and Zimbalist which discusses tactics cities can fight back against sports subsidies. Not a lot can be done but have active citizens and politicians can force monopoly sports owners to cut a better deal.
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